IEA Reports on State of Oil Markets since Emergency Stockpile Release

- IEA Reports on State of Oil Markets since Emergency Stockpile Release

Friday, July 15, 2011
Rigzone Staff
by Barbara Saunders

In an unusually strongly worded statement, the International Energy Agency (IEA) – the official energy watchdog for major consuming nations – said that its critics "can't have their cake and eat it too."

IEA made the statement in releasing its monthly oil market report on July 13, commenting on the status of oil markets since its call on June 23 for the release of 60 million barrels of oil and refined products from the emergency stockpiles of member nations, including the U.S. and Japan.

The move was made to help compensate for "a string of supply-side outage over and above" the loss of 1.5 million barrels per day (mbpd) of light sweet [i.e., easy to refine] Libyan crude oil, due to internal conflict in that nation, IEA said.

". . . [T]he market ledger this month looks slightly tighter than a month ago. Our balances for first-half 2011 [1H2011] show demand continuing to run ahead of supply, if a little less rapidly than in 2H10," IEA said.

"Major producers have recognized that demand for their oil is rising, with the seasonal uptick in 3Q11 refinery runs, and more generally as economic growth and short-term fuel substitution keep global and emerging market demand growth robust," IEA continued. “We welcome rising OPEC volumes seen in June (30.03 mbpd output), but the market needs still more oil for 3Q."

IEA continued, "This backdrop is simply a more vivid version of the one underpinning the IEA action, which commenced on 23 June. Member governments agreed to release 60 mb of strategic stocks for an initial 30 days, amid an ongoing disruption to light-sweet Libyan oil supplies, the anticipated rise in 3Q11 refiner and end-user demand and a likely hiatus before incremental OPEC barrels reach the market. Much ink has been spilt subsequently suggesting that the IEA action comes three months too late, depletes emergency stockpiles and has failed to reduce rampant crude and motor fuel prices. However, we feel compelled to point out that critics cannot have their cake and eat it too."

"Market intervention in late-February, when the Libyan crisis broke and prices surged by at least $10/bbl, would have been tempting, were price control really the prime motivation," IEA said. "But the presence of a supply disruption, and sharply higher prices is not, by itself, justification for a collective action. Market context is also important. Refiner crude demand was falling seasonally in March and April, but rising sharply in June and moving higher still in July and August, despite modest refining margins. Early-year industry stocks looked comfortable back in March, and there was a presumption then that other OPEC producers would immediately step in to boost supply to replace Libyan outages. In contrast, the absence up until June of major OPEC increases implied a real possibility that commercial stocks could fall to the bottom of their seasonal range, risking a renewed, damaging and sustained surge in international prices in 3Q11. The IEA therefore decided to act to address this supply-side issue, even though prices were then trending lower."

Marker crude prices fell by $5 per bbl immediately after the action was announced, IEA noted, adding, "Since then Brent futures have oscillated between $105-$119/bbl, and WTI between $91-$99/bbl. At writing, flat prices of $116/bbl (Brent) and $95/bbl (WTI) are close to those seen immediately prior to the action, but will doubtless fluctuate further in the weeks ahead. However, it is blinkered to focus on specific price levels, which were never the rationale for the action. Narrower sweet-sour spreads, modestly stronger refining margins and an easing of the steep backwardation evident before the release on the other hand all suggest a more benevolent market reaction. We acknowledge that the impact of the collective action will only be truly evident in hindsight. However, recognizing the flexibility and market liquidity it has already provided, we take a resolutely positive view so far."

IEA's move came in the wake of the last OPEC meeting on June 22, when three Middle Eastern nations – Saudi Arabia, Kuwait and the United Arab Emirates (UAE) – broke ranks from the other major producing member nations in wanting to increase production quotas to keep the world amply supplied. The three nations have since pledged to increase production in the absence of an all-OPEC accord, but there's a hiatus in the additional supply reaching the market.

Veteran OPEC-watcher Bhushan Bahree, senior director of global oil for IHS CERA, told Rigzone in a telephone interview: "Oil supplies are ramping up." Bahree added, "There was very little incentive for the other OPEC nations to agree to increase production. They have little or no spare capacity."

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IEA Emergency Oil Release Aims to Protect Economy

- IEA Emergency Oil Release Aims to Protect Economy

Thursday, June 23, 2011
Dow Jones Newswires
LONDON
by James Herron

Acting to protect a fragile global economic recovery against a backdrop of continually high oil prices, the International Energy Agency said Thursday it will release 60 million barrels of oil from emergency stocks to address the supply shortfall from Libya.

The move, announced by the agency's executive director at a hastily-organized press conference in Paris, helped send oil prices sharply lower Thursday, the latest drop in the commodity amid increased uneasiness about the economic outlook.

"The global economy is still emerging from recession and it is essential that this recovery not be endangered by an oil supply shortage," IEA Executive Director Nobuo Tanaka said. "The situation is getting tighter and tighter," he said, adding: "we have to act now and to fill the gap."

The IEA almost never diverts from a its public mantra on the need for OPEC and other producers to pump more oil to keep the economy humming. But Tanaka and other IEA officials have sounded an increasingly brittle note over the economy in recent weeks. Tanaka told a St. Petersburg, Russia economic forum last week that he feared a "very hard landing" due to high prices.

The IEA's surprise decision comes less than three weeks after a meeting of the Organization of Petroleum Exporting Countries disintegrated into chaos as members couldn't agree on a plan to boost output. The IEA has subsequently praised unilateral moves by Saudi Arabia and others to boost output without the OPEC agreement. On Thursday, Tanaka said the emergency release was taken to make up for a delay before Saudi supplies hit the market.

The IEA, which represents consuming countries and is responsible for coordinating emergency releases, said it will add an extra 2 million barrels a day of oil, equivalent to around 2% of global supply, into the market for the next 30 days from emergency stocks.

The IEA consulted OPEC members, as well as Chinese officials and representatives from other countries not officially part of the IEA, IEA officials said.

The IEA's move gave further downward pressure to oil prices on a day in which gloomy economic data had already sent crude lower.

Even before the IEA announcement, oil prices had been trading lower Thursday following surprisingly poor labor department figures in the U.S. But the IEA news sent prices lower still.

Light, sweet crude for August delivery tumbled $5.42, or 5.6%, to $89.99 a barrel on the New York Mercantile Exchange. Prices fell as low as $89.69 a barrel earlier in the session, their lowest since Feb. 22.

Brent crude on the ICE futures exchange fell even further, giving up $7.66 or 6.7%, to $106.55 a barrel, a day after the European contract rose sharply.

Crude prices have dropped around 10% since the June 8 OPEC meeting. Investors have fixated their attention on fears of weakening consumer demand and the ongoing debt crisis in Greece has dominated headlines.

The IEA elected not to release oil from stocks earlier this year, when 1.5 million barrels a day of Libyan oil supplies were shut down by the civil war. However, as the Libyan conflict has dragged on in stalemate, the effect of loss of those crude supplies has become more pronounced, the IEA said.

"The normal seasonal increase in refiner demand expected for this summer will exacerbate the shortfall further. Greater tightness in the oil market threatens to undermine the fragile global economic recovery," the IEA said in a statement.

Demand for oil typically rises in the summer season due to increased gasoline use in the U.S. Oil demand has also exceeded expectations in China as electricity supply problems have prompted higher use of diesel for power generation in China. Oil prices have retreated in recent days, but consumers remain concerned about a supply crunch later this summer.

Previous IEA stock releases followed the first Gulf War and hurricane Katrina.

Copyright (c) 2011 Dow Jones & Company, Inc.

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Maryland AG Plans to Sue for Fracking Fluid Release in Northern Pa.

Maryland AG Plans to Sue for Fracking Fluid Release in Northern Pa.

Tuesday, May 03, 2011
The Baltimore Sun, Maryland
by Frank D. Roylance, The Baltimore Sun

Maryland's Attorney General has told a gas driller working in Pennsylvania that he plans to sue the company for violating federal anti-pollution laws after thousands of gallons of hydraulic fracturing fluid spilled into the Susquehanna River watershed last month.

In a "notice of intent to sue," Attorney General Douglas F. Gansler said there was an equipment failure April 19 at a gas well being drilled by Chesapeake Energy Corp. in Leroy Township, in north central Pennsylvania. The failure resulted in "loss of control of the well."

"Tens of thousands of gallons" of "fracking" fluid, used to fracture bedrock and release natural gas from the Marcellus Shale deep underground, leaked out and escaped the berm built to contain it, Gansler said. The fluid crossed neighboring farms, then flowed into Towanda Creek, a tributary of the Susquehanna River.

Gansler told the company the spill "may pose ... an imminent and substantial endangerment to the health of the population adjacent to the well site, recreational users of Towanda Creek and the Susquehanna River and to the environment. ..."

The fracking fluid contains hundreds of chemicals, some of them toxic, the attorney general argued, and the spill therefore constitutes a violation of the federal Resource Conservation and Recovery Act, and the Clean Water Act.

The Susquehanna provides 45 percent of the fresh water entering the Chesapeake Bay, and supplies drinking water to 6.2 million people. It is a backup source of water to Baltimore City in times of drought.

Brian Grove, senior director for corporate development at Chesapeake Energy Corp., said testing during the spill revealed "limited and very localized environmental impact, with no adverse affects [sic] on aquatic wildlife in Towanda Creek."

Testing in the Susquehanna a short distance downstream found "no effect whatsoever," he said. "We are confident there will be zero impact hundreds of miles away. The Susquehanna River and the Chesapeake Bay face many environmental threats; this event is not one of them."

Copyright (c) 2011, The Baltimore Sun. Distributed by McClatchy-Tribune Information Services.

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